Judith and Sidney Swartz Director and Professor of Politics and : A Trip Report Shai Feldman

Associate Director Kristina Cherniahivsky Shai Feldman and Tamara Cofman Wittes* Charles (Corky) Goodman Professor of History and Associate Director for Research Naghmeh Sohrabi rom 15-25, the research team of Brandeis Myra and Robert Kraft Professor FUniversity’s Crown Center for Middle East Studies and of Arab Politics Eva Bellin members of its Advisory Board traveled to Kuwait and Saudi Arabia.** The group was joined by Tamara Cofman Wittes Henry J. Leir Professor of the Economics of the Middle East of the Brookings Institution. The trip included structured Nader Habibi dialogues, individual meetings with experts and government Renée and Lester Crown Professor officials, interactions with members of , and of Modern Middle East Studies Pascal Menoret a special journey to the southern region of Saudi Arabia

Senior Fellows adjacent to the border. A few weeks earlier, one of Abdel Monem Said Aly, PhD Kanan Makiya, Professor Emeritus the co-authors of this report also visited . This report summarizes the two authors’ reflections regarding the Goldman Senior Fellow Khalil Shikaki, PhD domestic and foreign policy challenges currently facing these

Research Fellow three Gulf Arab states and how they are confronting those David Siddhartha Patel, PhD challenges, including in relation to one another. Neubauer Junior Research Fellow Golnar Nikpour, PhD The countries we visited, together with most if not all members of the , are facing three interlocking challenges: Junior Research Fellows Samuel Dolbee, PhD Nils Hagerdal, PhD Mohammed Masbah, PhD *The report reflects only the impressions of its two co-authors. It does not represent the views of the Crown Center, its Advisory Board, or the other members of the group who traveled to Kuwait and Saudi Arabia. **The Crown Center wishes to express its deep gratitude to its Advisory March 2018 Board member, Fouad Alghanim, whose generous gift allowed the Center’s research team to travel to Kuwait and Saudi Arabia. First, the effects of the violent fracturing of four Arab states (, , , and Yemen) resulting in the breakdown of the power balance in the region, and leading to a fierce competition for influence and positioning amongst regional and external powers, including , , and .

Second, uncertainty about American policy and specifically the degree of U.S. commitment to its traditional role of preserving regional security against revisionist challengers.

Finally, political and economic models, rooted in rentierism (non-tax income from energy resources), that are strained by economic globalization and youthful demographics and must now confront historic changes in global oil markets, making lower oil prices and smaller market share a reality for the foreseeable future. In turn, these challenges demand long-delayed revisions to these states’ domestic social contracts.

Each of the countries we visited is responding differently to these three challenges – but all share certain concerns, including anxiety over Iranian influence, frustration over penetration into the region by Turkey and Russia, and dismay at what they perceive as withdrawal of American presence and influence in the Middle East.

The Transformational Effect of “Lower for Longer” Energy Prices

To varying degrees, in Kuwait, Oman, and Saudi Arabia, one impression seems inescapable: namely, the sense that the existing economic model of these states is unsustainable and that deep structural changes are therefore unavoidable. While this point has been made repeatedly since the 1950s, and while some such reforms have been implemented since the 1980s, there seems to be an understanding that deeper changes are now required and that their implementation is more urgent Shai Feldman is the Judith than ever. Thus, after decades of talk about the need for reforms to curb inefficient state social welfare systems and meet the needs of a large youth bulge, there is now and Sidney Swartz Director real urgency to the reform agenda. of the Crown Center. Largely, this urgency is driven by the sharp drop of oil prices from their peak in Tamara Cofman Wittes is a 2014, and by broader changes in global energy markets that mean prices are senior fellow in the Center likely to remain lower for the foreseeable future. New supplies from West Africa and North America, and the development of diverse energy sources for growing for Middle East Policy at the markets, mean that the oil producers of the Gulf can no longer either set or Brookings Institution. stabilize global prices. This year, for example, the United States is expected to produce more oil than the Kingdom of Saudi Arabia.

Domestically, lower energy prices and large youthful populations make the old social contract rooted in expansive social welfare a budget-busting proposition for the Gulf states; without reforms, they will deplete their carefully-built sovereign wealth funds on domestic spending and build up large debts in a matter of a few years.

To varying degrees, this conclusion has led almost all Gulf states to give greater priority to a common imperative: to reduce their economies’ dependence on oil. Thus, from Saudi Arabia’s Vision 2030 to Kuwait’s Plan 2035, the basis of all Gulf macro-economic plans is similar: to reduce the relative importance of crude oil 2 sales to economic growth and government revenue by growing non-oil and downstream industries (and in Saudi Arabia, by introducing new forms of taxation and by demonstrating a greater commitment to collecting such taxes); to curb by shrinking public-sector employment and reducing subsidies; and to create more jobs for citizens entering the workforce by growing the private sector and reducing expatriate labor.

At heart, this set of reforms would transform the citizens of Gulf Arab countries from entitlement-based consumers of government resources to shareholders in the national economy – both as stewards of national oil wealth and as wealth creators themselves. Inevitably, this transformation must involve a shift, not only in what government provides, but in what citizens expect. The social and political implications of such change may be far-reaching and not easily managed, which is one reason why these reforms have been resisted for so long.

Promises and Risks in Economic Reform

As noted, Kuwait and Saudi Arabia are taking very different approaches to this challenge. Kuwait is perhaps the best poised to manage low oil prices: its production costs are low, its sovereign wealth fund is well-established and legally protected, and its government budget rests on a lower price assumption (under $50/barrel, according to the IMF) than any other Gulf producer. Still, Kuwait is planning for a deficit in 2018-2019, and its presents a tough obstacle to any significant shrinkage in government welfare programs. Members of Kuwaiti Parliament often give voice tothe concerns of Kuwaitis who are employed by or benefit from the public sector and fear being “left behind” by the proposed reforms. Changes to the structure of parliamentary representation might be the only way to shift the political balance and open new possibilities for compromise on a reform agenda.

Saudi Arabia’s Vision 2030 has caught the ’s attention as the most ambitious reform plan put forward by the Gulf Arab states to manage a future in which oil plays a much smaller role. After decades under aging and conservative leadership, the pace of decision making and the breadth of vision evident in the new Saudi leadership is striking and, for many of our Saudi interlocutors, eminently refreshing. Indeed, it is difficult to remain indifferent to the palpable enthusiasm we spoke to expressed for the “brave new world” that Mohamed bin Salman’s planned reforms promise. We spoke to older Saudis who have been advocating some of these reforms for years, as well as some who have been more cautious; both groups made clear that the reforms of Vision 2030 are not only urgently necessary but desirable for the future of the country. One described the imperative to change to accommodate the younger generation as “riding on a runaway train.” We also spoke to younger Saudis both in government and out who believe that Vision 2030 offers them opportunities for personal and professional growth that they did not expect to have when they were growing up. Less tangibly, we heard a sense that the young crown understands and can relate to the hopes and frustrations of Saudi’s majority: its young people. For example, while some expressed alarm about the sudden arrests of royals and businessmen last November, they also expressed relief that the crown prince understood public concerns over corruption, and sought to spread wealth more widely.

This enthusiasm, which some western journalists and policy experts have found irresistible, should not, however, prevent us from seeing the risks associated with the planned reforms. Some of these risks are inherent to the enterprise: altering longstanding structures of power and privilege necessitates risk-taking. Politically, Salman and his son are laying the basis for the first transfer of power to a grandson of the Kingdom’s founder, Abdul Aziz al-Saud. They are also shifting the ’s political base from a network of royals and elites who live off state patronage to a wider, more populist base in Saudi’s overwhelmingly large rising generation. Making this shift requires sidelining those invested in the status quo, and Mohamed bin Salman is doing that largely by centralizing power in his own hands, marginalizing and discrediting other members, and promising young Saudis better services, greater social freedom and wider economic opportunities.

The key question is whether the young crown prince can build his new political base faster than his opponents amongst the old, alienated base can regroup and mobilize against him, and do so while his father is still there to provide full and effective backing to his son’s daring moves. The “losers” of the reform process include some branches of the royal family, conservative clerics (those who enjoyed autonomy over certain government offices as well as those with large independent followings), and, of course, the many who are presently employed by bloated bureaucracies and who would find it difficult to adjust to the very different requirements and pace of private-sector jobs.

3 So far, the crown prince’s strategy has been to push the “better connected” and lead to the rise of a new class of through change from the top – issuing royal decrees at a Arab oligarchs, just as Russia’s privatization empowered a breakneck pace, replacing underperforming officials with new class tied tightly to the Kremlin. How will the reforms more business-minded individuals, and circumventing address poverty in the Kingdom, which the government recalcitrant bureaucracies by establishing ad-hoc already has trouble acknowledging? And although commissions that report directly to him. With the king’s hundreds of thousands of young Saudis have studied blessing, Mohamed bin Salman did not wait to build a abroad over the past decade, millions more have not had an supporting coalition within the royal family or other education that prepared them to succeed in a new, private- major families for his plans. The crown prince has also sector-driven economy. Might Vision 2030 inadvertently pre-empted and suppressed dissent through arrests – entrench a two-tier society of haves and have-nots? not just of business figures, but more notably of clerics, journalists, human rights activists, and political and Indeed, even if successful, Vision 2030 will have profound civil-society activists, many of whom have been detained unintended consequences on society. Already, Saudi without trial since last September. Aside from what this Arabia’s population is more than 80% urbanized, and that means in the realm of basic human rights, this climate percentage is expected to rise above 90% in the coming of intimidation created by increased repression may decades. This rapid urbanization has produced a dire need also prove costly for the desired economic reforms, as for better urban infrastructure, including housing and people may be deterred from reporting conceptual gaps schools, even as it erodes the traditional tribal hierarchy of and failures of implementation, thus depriving decision family structure in the Kingdom. The government laudably makers of necessary feedback to ascertaining the success, now recognizes that middle-class Saudi families in cities failure, and consequences of the reforms. This top-down now require two salaries to live comfortably, and thus has approach also means that some of the country’s elites can placed a priority on increasing female participation in the be expected to “jump ship” at the first sign of significant labor force, eliminating the driving ban and curbing the failure. The possible movement of Saudi capital out of the power of the virtue police to enforce gender segregation. Kingdom in the coming year or two will bear close scrutiny But these shifts will inevitably produce further changes as a measure of how these elites evaluate the prospects for and pressures. Male guardianship is less sustainable when Vision 2030’s success. men and women are both working and earning money and women are able to travel more freely – indeed, the Economically, the reforms of Vision 2030 represent a legal system of male guardianship over women represents big bet: that the Kingdom can catalyze new growth and a hard constraint on women’s economic participation, investment in the Saudi economy faster than the drop in especially in . How long will it survive? oil prices and the burdens of social services and regional The increased focus on the welfare of the nuclear family, power projection (including an expensive war in Yemen) women’s economic empowerment, and the already- are draining government reserves. Some observers both dramatic decline in children per family amongst middle- in the Gulf and in the West are concerned at the delay in class Saudis will likely further reduce the force of tribal listing Saudi ARAMCO, the national oil company, for an authority in people’s lives, which will also further diminish initial public offering – a central feature of Vision 2030 that a traditional component of the Kingdom’s social cohesion is crucial to raising cash for a new sovereign wealth fund, and social control. The political consequences of such domestic spending, and kick-starting the domestic private likely developments are hard to foresee. sector. The delays raise questions about the government’s commitment to transparency, but also about how long These prospects raise a final risk to consider as Vision Vision 2030’s math can work without a sale: the Saudi 2030 plays out: having put forward a laudably ambitious government has gone to foreign markets to raise capital vision for the future, King Salman and his son must each of the last two years; given the outlook for lower manage the expectations of a population that is two- energy prices over the longer term, a debt-laden Saudi thirds under the age of thirty: mobilized, excited, used Arabia will not be as good a prospect for investors. to the government providing for them, and impatient for future promises to be realized. The uprisings Other categories of risk in Vision 2030 also bear watching, emerged amidst such unmet expectations, when rising especially issues left unaddressed in the reform plan so economic growth produced spikes in inequality and anger far. For example, in government privatizing public-sector over corruption. In Iran in 2017, protests were driven in companies and catalyzing private-sector industries, who part by the government’s releasing an austerity budget will benefit? Our conversations raised concerns over that contradicted public expectations of a benefit from whether this process would be open and merit-based, or the lifting of international sanctions. How will the Saudi whether these enterprises might end up in the hands of government respond if it can’t meet these expectations?

4 Will it continue to act aggressively against expressions but Saudi Arabia chose to escalate the conflict there, of dissent or disappointment, doubling down on abuses diverting its resources from the higher-priority effort to of human rights? Potential challengers to Mohamed curtail Iran’s influence in Iraq and Syria. While ’s bin Salman, whether rival family members or ultra- more recent outreach to Iraqi Shi’a leaders and to conservative clerics, will undoubtedly look to capitalize on won plaudits, having intervened in Yemen (with the any missteps. support, it must be noted, of all GCC states except Oman), Saudi Arabia is now bogged down militarily, with no diplomatic exit strategy and facing differences of opinion Reform Challenged by a Region in Turmoil with the UAE over tactical priorities and their support of different local allies. Notwithstanding all these risks, the domestic reforms currently attempted in Saudi Arabia, as well as the less Why the Saudi Kingdom allowed itself to fall into the dramatic changes evident in the smaller GCC states, are Yemen trap – and has likewise failed to extract itself long overdue. By contrast, some regional policies pursued from it – was a question repeatedly raised by our Gulf by the very same leaders have ranged from puzzling to interlocutors. The smaller GCC states are left to make their disastrous. Indeed, if not soon amended, these regional own choices about how to balance competing pressures trajectories could undermine the proposed economic and incentives from Riyadh, , , Moscow, and reforms, just as the War buried President Lyndon Washington. Kuwait, long a balancer in the Gulf, has made Johnson’s Great Society. a strategic decision to invest heavily in support of Haider al-Abadi’s government in Baghdad as a bulwark against Policies like Saudi Arabia’s relentless war in Yemen can more sectarian and pro-Iranian Shi’a political factions. be understood as self-help strategies driven by leaders Kuwait has made clear it is willing to invest heavily in who perceive their regional preferences as under assault Iraq, should Prime Minister Abadi’s coalition succeed by rivals, and who perceive U.S. policy as insufficiently through the elections to be held in May in forming a new assertive to contain the threats. (We must note, though, government. Kuwait’s government is also preparing to that both Obama and Trump have been quiet partners in establish a new trade-focused economic “city” north of Saudi Arabia’s Yemen war.) While these leaders vary in , closer to the Iraqi border. the degree of intimacy they enjoy with the Trump House, many of them share a skeptical view: that while The rift between three GCC states (Saudi Arabia, the the rhetoric of the current administration is different from United Arab , and ) and continues, that of the Obama administration, in reality Trump walks and seems unlikely to resolve as both sides are deeply dug the same path of retrenchment that began during Obama’s in and the grievances are intense. Our Kuwaiti and Omani two-term presidency. interlocutors were critical of Qatari behavior, but they see the ongoing dispute as fracturing and weakening the GCC. Gulf Arab leaders fear that this retrenchment increasingly Those we spoke to emphasized the value of the GCC as the leaves the region at the mercy of other influences, notably last remaining cohesive inter-Arab mechanism, and thus as Russia, Iran, and Turkey as well as . The Sochi a crucial instrument both in restoring regional stability and summit convened by Putin over the fate of Syria, with in holding off Iranian aggression. Working with Secretary Iranian and Turkish participation but with no Arab of State Rex Tillerson, Kuwait’s sought early on to governments present, was cited by one of our interlocutors mediate the Qatar dispute, but clashing messaging from as an acute, and shameful, manifestation of the situation the White House compromised that effort (a problem that Arab Gulf nations now face, in which others are seems now to have been resolved). The emir’s persistence determining the shape of their neighborhood. did suffice to prevent further escalation of the conflict, and Kuwait managed to host a GCC summit in December, even if most heads of government stayed away. Dynamics within the GCC But the fracturing also reveals the extent to which the smaller Gulf states feel pressured within the GCC by the For the smaller GCC states, Saudi Arabia’s regional preferences of their far larger and more powerful neighbor, policies are seen as exacerbating these negative the Kingdom of Saudi Arabia. This concern was more developments. The most serious of these is the Kingdom’s manageable when the Kingdom was under more cautious heavy involvement in Yemen. Our interlocutors outside and consensus-minded leadership; a Saudi leadership that the Kingdom view the war in Yemen as a distraction from is acting boldly and demanding absolute fealty makes it the core of the Iranian geo-strategic challenge: the extent much harder to preserve unity within the GCC. The result of Iran’s investment in its Houthi allies is relatively minor, 5 of the strategic errors in Saudi regional policy is that some smaller GCC states no longer feel they can rely on consensus-based judgment from the Kingdom to protect their own interests and help preserve their own security. In one way or another, each of these states is now looking to hedge its bets; we heard sympathy, for example, for Qatar’s recent defense agreement with Turkey.

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The Saudi bet on economic diversification and social liberalization is the bet that other Gulf states are praying pays off. If reforms in long-stagnant Saudi Arabia work out, they will strengthen the logic of the reform road the smaller Gulf states have been traveling for years. If reforms in Saudi Arabia fail, and major economic or social disruptions result, the consequences for the region might be dangerously destabilizing.

Recognizing this, it’s understandable why so many observers and analysts choose to cheer on Mohamed bin Salman and advocate for a shoulder-to-shoulder approach to relations with Riyadh. Yet hope is not a policy, and those concerned to promote regional stability must look to mitigate the risks of change even as they seek to promote it, and look for opportunities to resolve regional conflicts and build alliances. These goals require soft power at least as much as hard power – and wielding soft power seems a lost art in today’s Middle East.

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